Loan modifications performed on mortgages in bank portfolios perform much better than mods on mortgages included in non-agency mortgage-backed securities, according to an analysis by Inside Nonconforming Markets of new data from the Office of the Comptroller of the Currency. The performance varies significantly even as the two types of non-agency mortgages receive the vast majority of principal reduction loan mods. The 12-month re-default rate on mods implemented from 2008 through the first quarter of 2011 was ...

Non-agency mortgage-backed security investors strongly oppose a proposal in California to reduce principal for borrowers with negative equity by acquiring mortgages via eminent domain. The proposal could set a troubling precedent according to non-agency MBS investors, who are still considering options to prevent such seizures. In June, San Bernardino County along with two cities in the county, Ontario and Fontana, approved a resolution that would allow the municipalities to acquire mortgages with negative equity using eminent domain ...

Compensation for non-agency mortgage-backed security servicers should be adjusted and the industry should adopt practices from commercial MBS servicing, according to Morningstar Credit Ratings. The firm that recently established its non-agency MBS rating capabilities said enhanced servicing could help revive the issuance of non-agency MBS. “Without these reforms it may prove very difficult to attract investors back into the fold of private-label residential mortgage securities given the weaknesses exposed in ...

When it comes to modifying non-agency mortgages, early loan modifications greatly increase the rate of success, and principal reductions are the most effective type of loan mod, according to a new study by the MBS strategy group at Amherst Securities Group. “Modification activity has undergone a dramatic reshaping over the past few years, which has dramatically improved modification success,” the study said. “In particular, payment reductions are much larger now, and that is...

Redwood Trust is getting ready to issue its third jumbo non-agency MBS of the year, a slightly smaller deal backed by loans with slightly less shelf life. Fitch Ratings said it would give a triple-A rating to the most senior class based on 7.30 percent credit enhancement. That’s slightly above the 7.15 percent enhancement supporting the top tranche in Redwood’s previous jumbo deal. The company’s first securitization of 2012 had 8.25 percent of credit support for the top class, but it included a significant number of adjustable-rate mortgages. The new transaction, Sequoia Mortgage Trust 2012-3, will be backed by all...

The pending issuance by Redwood Trust of a $293.59 million jumbo non-agency mortgage-backed security appears to have been adjusted to address concerns about previous issuance by the real estate investment trust. The deal is set to receive AAA ratings from three rating services, more lenders contributed to the deal, and the concentration of loans in San Francisco was reduced. “The borrowers in this pool have high FICO scores, significant liquid cash reserves and equity in their properties, which are ...

Capital rules proposed by federal regulators last week for banks could have a significant impact on originations and holdings of non-agency mortgages and mortgage-backed securities. The changes are part of Basel III reforms. Non-bank special servicers have already started to increase their portfolios due to sales by banks getting a head start on complying with Basel III rules. Industry analysts warn that originations of “non-vanilla” mortgages will also be curtailed. “Following the qualified mortgage rules and ...

Redwood Trust and the main lenders it sources mortgages from largely rank above average, according to new assessments by Moody’s Investors Service. Moody’s ranked Redwood Residential Acquisition Corp. above average as a jumbo aggregator based on the performance of Redwood’s collateral, lending practices, and operational stability. “In our view, Redwood has a stable, credit-savvy team with a sound lending philosophy that has successfully managed its way through the financial crisis,” the rating service said. Moody’s also ...

The field of firms looking to place ratings on non-agency mortgage-backed securities got a little more crowded last week. Morningstar Credit Ratings released its non-agency MBS rating guidelines with criteria similar to the five firms that have placed ratings on non-agency securities in recent years. Morningstar said it will provide “timely, unbiased and transparent” ratings on both new-issue and seasoned non-agency MBS. Securities will have to be able to withstand a “catastrophic event” to receive ...

Mortgage industry participants are concerned about plans by the Federal Housing Finance Agency to expand the non-agency market via a contraction of Fannie Mae and Freddie Mac. The comments were submitted to the FHFA last week in response to the FHFA’s proposed strategic plan for fiscal years 2013 to 2017. “To attract private capital to the mortgage market and reduce [government-sponsored enterprise] risk exposure, FHFA will direct the [GSEs] to price guarantee fees to levels that align pricing with ...